Ask Darwin: the answer to all your financial questions

Ask Darwin is a monthly series I wanted to start after reading about people’s responses to the flooding in Calgary. The idea behind Ask Darwin is to think about the way we look at things and challenge what’s really happening for us when we think, feel, or behave in certain ways. Thanks for stopping by!

Dear Darwin

Recently there was a flood in my city and my house flooded. Now my insurance company won’t pay for the damages because it wasn’t included in my coverage. Don’t you think they have a moral and social responsibility to give me money to help pay for the damages? After all, we trusted them.

With regards

Doin’ the backstroke, Calgary AB

Dear Ms. Backstroke

No.

Sincerely

Charles ‘Da man Darwin

Before I get a hundred responses full of four letter words for my heinousness, let me explain.

Here’s a quote from someone whose house had flooded and had been denied coverage by their insurance company:

“When we purchased our insurance from RBC, we trusted them as a company that would do the right thing in a situation such as this,” she said. “To get a blanket denial for our claim left us both surprised and deeply disappointed.”

Here’s the background:

A few weeks ago, the Bow and Elbow Rivers breached their banks and started flooding out whole communities in Calgary, Alberta. Mayhem ensued.

Sewer back-ups brought water into basements; overland flooding left people stranded; neighbourhoods were evacuated; and property was damaged or completely destroyed. City of Calgary – and many others – stepped up and had emergency services mobilized and emergency assistance centres distributing desperately needed resources to everyone affected.

Home owners with property damage started learning some difficult truths – the payments they had so faithfully been paying for months or years to their insurance companies for home and content coverage will not accept their claims. Those who had flooding due to sewer back up got off a little easier because some insurance cover that clause.

Here’s why: I have no control in my life if I think like this.

If I read my insurance policy and understand the terms, I am able to make an informed decision about the service I am receiving. I am able to shop around and see if there’s a different company that offers coverage that better fits my needs. If a company is too restrictive in their coverage, I am going to bounce them pretty quickly.

If I hope for the best and plan for the worst, I am able to have funds available to me so I can get through a tough spot without it destroying my whole life.

If I manage my finances appropriately, I can avoid some of the complications that can happen in life when you’re living in the red.

Where I am now: Not quite there yet.

If I were any of these people that had been flooded, I would be doomed.

At this point, I haven’t read my home/life insurance agreements and have no idea if they would cover me for sewer back up caused “directly or indirectly” by overland flooding.

That trusty to-do task is on my list for tonight, though.

I haven’t hoped for the best and planned for the worst, I don’t have the necessary funds to get me through a tough spot – no matter how small or big.

I have a plan for this and our new roommate will help with paying down debt and having some funds available for an emergency.

I haven’t managed my finances appropriately at this point so I’m vulnerable to smaller complications becoming bigger complications because of my precarious money situation.

I am reading PF blogs and books like a maniac and working hard at developing new habits so I can change this fact. This will take awhile though.

In the same situation, I would do exactly the same thing as Joanne Aime and other residents refused by their insurance companies and appeal through the media. It worked for them and it couldn’t have come at a more opportune time – the flood damage to their homes will cost big money.

The point being is that I don’t want to be in this position. I’m working towards becoming someone that can roll with the financial punches in a more proactive way.

There has to be a better way than being at the mercy of random insurance company’s “common decency”.

I literally just changed over my home insurance yesterday to save money. It clearly states that I do not have flood insurance. I paid the extra $60 a year to get sewer backup insurance.
If you didn't pay for it, don't bitch when the unlikely happens. It's your responsibility to ensure you're properly ensured and no one elses!

I'm not quite sure where I stand on this. My heart goes out to the folks in Calgary. I can't imagine being in that situation and having my claim denied. I agree and understand the need to take responsibility, but the issue I have, is that with insurance you have no choice. Insurance is mandatory in Canada (which I'm not saying it shouldn't be), but you couldn't get flood protection even if you wanted to, at an increased cost. Especially when insurance companies know that homes in the area they are insuring are for example, built on a flood plain or that there is a possibility of a forest fire, they should take some of the brunt. Instead they wash their hands clean of every situation. Stock market tanks, they have to raise premiums because they lost 'our' money investing it in risky investments. Even in critical illness insurance, although they clearly state that they only cover severe heart attacks, terminal cancer and maybe one more life-threatening illness, the fact that some even after having one of those terrible things, is denied because they had some pre-existing condition irks me. They were okay with it when they initially approved the application. I don't really have anything against insurance companies, they will do what they can get away it. The insurance companies have no moral obligations, but I think the government does, not financially, but at least to provide some regulatory protection for consumers.

I completely agree with your assessment. Companies are not in business to provide you with social and moral obligations. They are a business and they offer different types of coverages. Yes, it sucks, but they are not there to make sure you get something that you didn't pay for. I am sad that this has happened, but it shows you that people expect stuff even when they are not entitled to it.

That sucks hard for those people, but insurance companies are not in the business of giving out money- as you pointed out. Trusting an insurance company to "do the right thing" is like trusting Ted Bundy with your daughter.

It was sad for flood affected people. But it is sick about insurance companies who make it a strategy to write those traps in fine print, yes i call it traps in the fine print. Why don't they mention it upfront on what is covered and what is not. Anyways I know it is not worth complaining as it our job to read it as well. I am not good either but want to make it habit to read each every point in terms and conditions before I agree to it.

I think it's just one of those things that plain sucks...but in the end you have to take responsibility over what happened, and if that meant you didn't read your insurance policy and just assumed, then sadly you'll know better next time. But your article points out something very useful, which is don't be complacent and assume anything. Plan as if NO ONE will take care of you, then you won't be shocked if they don't, but be pleasantly surprised if they do. That being said, my heart does go out to everyone affected.

While the flood is a tragedy, the other tragedy is how few people have no idea what's in their policies. I once had someone tell me their hurricane deductible was $80. In reality their hurricane deductible was $8,000. And they didn't understand that flood coverage was separate from homeowner's coverage, and the exclusions... Down here you REALLY need to read the fine print on your policies or you can end up being stuck with a huge bill.

I think you're spot on, however sad the situation is. The day we start to believe that a company actually "cares" about us is the day we start deluding ourselves. There may be a few good ones out there, but by and large, they're looking at the bottom line.

Yup, you gotta read the fine print, which I am notoriously bad at doing. :) Click here to agree to terms, blah, blah, blah. Not the best habit!! I am also trying to beef up my emergency fund. It is seriously lacking which concerns me.

We had some flooding in Toronto last week and also got home insurance for our new house (neither the new house or the one we are renting had any damage). The insurance rep made sure we clearly understood what we are and are not covered for when there are floods. I wonder though if he would have been as through if there hadn't just been a flood and it wasn't at top of mind. Just like banking and credit agreements, most people don't read the fine print and then get mad when things don't go their way. Gotta read those agreements!

Couldn't agree with you more. While I feel terrible for anyone who's home was damaged or destroyed, unless they were straight up lied to by the insurance company then it's no one's fault but their own for not having coverage. They signed a legal document and the fact that they didn't read it or understand it is, in the end, their fault. Now, could insurance companies do a better job of outlining what is and isn't covered? Sure they could. And probably should. But in the end you as a consumer still have to take responsibility for your own actions. If you can't do that, like you say, you'll never really have control over your own life.

It's true! While it's tragic what happened to people, I think the important take away is to learn from what happened and become more educated about the services we buy from businesses. This isn't to minimize what happened to those people - they've lost everything and nothing can change that. I can only hope that I can be as ready as possible for when life throws me curve balls, because it's going to happen!

This is a very good point and I wasn't aware of some of those details you mentioned - like the insurance premiums going up because of bad investments on the insurance company's part. It might be worth exploring in a future blog post....

Hi Grayson! Yes, I think it's important to be realistic about what you can expect from companies/businesses that you enter into contracts with for services. While I think they need to do their jobs, I think we need to do our jobs too. Part of being an informed consumer is to know your rights and stay current on what goods or services you are entitled too when you need to call upon the company to fulfill their end of the bargain. Burying my head in the sand and then expecting insurance companies to compensate me because it's their social and moral obligation sounds like a bad plan on top of an already tragic situation (flood). I do commend these people for getting some sort of a settlement out of the insurance companies by going to the media, I think that's awesome they advocated for themselves! I just wouldn't want that to be my Plan A in a crisis.

Bwahahaha....I'm not sure I could have said it better myself. :) It really does suck for a lot of people because there isn't even an option to by flood insurance in Canada. Regardless of how well-informed you are, you still would have been screwed. Not cool.

I think they is a burden of responsibility on the company - to a certain extent - to inform their clients of what they are signing. "Signing on the dotted line" does not necessarily indicate understanding and consent. I'll be interested in seeing what comes out of these denied claims, I know a lot of people are going to be taking their complaints to the Federal Ombudsman. Something will shake out from this, and hopefully that will be some consumer protections along the lines of "duty to inform".

It is terrible what has happened to people - losing their belongings and homes and then having your insurance company deny your claim...
I think what the takeaway message is that it's important we are informed and empowered consumers whenever we enter into a contract or purchase coverage from a business. The more we educate ourselves, the more we are able to plan for the inevitable what ifs in life.
However, I think it's also important to say that companies aren't doing enough to ensure that people understand what they are buying, or leasing, or whatever. In fact, there are laws about this, "signing on the dotted line" does not necessarily imply understanding and consent. I'm sure it's different from country to country, or state to state - but there are rules about these things. I'll be curious to see if the insurance companies end up in hot water over something like this.

Yes, you hit the nail on the head, mon ami. Companies are in the business of doing business and generally aren't going to be concerned with supporting us beyond their contractual obligations. Like you said, there are some good ones with solid reputations but these are more likely to be the exception to the rule.

I know, they can be pretty dodgy at times! For the most part, they've been decent when I've been in a fix and I didn't need to fight too much for things. But I've only dealt with one or two in my life so I have pretty limited experiences. I'm glad you switched out when you could - you don't want to have to worry about dealing with a difficult company when you're stressed out.

I bet your right about the insurance agent being extra thorough because of the floods. It's been a bit of a PR scandal for some of the companies who weren't covering some of the damages from sewer backup. I'm tired just thinking of going through some of my agreements - they're in two font and nine pages long. It's necessary though!

What happened is a tragedy and for so many people too. I know there's been a lot of people stepping forward to volunteer, donate goods, and/or give money but homes are still destroyed and belongings lost. I know I'm not great at reading the fine print on some of these contracts - it's too bad it takes something like these floods to remind people (including me!).

I agree that insurance companies should probably step up and be more clear about what their policies will and won't cover - it's a little shady that some contain clauses that won't cover sewage back up due to overland flooding, for example.
In the end though, I know I'm the one that needs to be aware of what's covered in my plan because I'll be the one picking up the pieces once something has happened. It's a shame that companies do stuff like this but in the end - it's all business.